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October, 06th 2014

                                           Date of Decision: September 09, 2014
+                                   ITA 161/2002
         COMMISSIONER OF INCOME TAX-DELHI                         ..... Appellant
                           Through:      Mr.N.P.Sahni, Sr.Standing Counsel with
                                         Mr.Nitin Gulati, Advocate
         SUBHASH CHAND RASTOGI                                    ..... Respondent
                           Through:      None


1.       By order dated 18.03.2003, the following substantial question of law was

framed in this appeal filed by the Revenue which pertains to the Assessment

Year 1991-92:-

         "Whether there was any material before the Tribunal to hold that
        the assessee was entitled to deduction under Section 80HHC of the
        Income Tax Act, 1961, in respect of alleged export of zinc oxide?.

2.       The impugned order dated 20.11.2001 of the Income Tax Appellate

Tribunal (,,Tribunal for short) was passed in ITA No. 5350/DEL/94.

3.       We have heard the counsel for the appellant-Revenue, but, there is no

appearance on behalf of the respondent-assessee.

ITA No. 161/2002                                                             Page 1 of 8
4.       The respondent assessee an individual in his return of income filed on

31.10.1991 declared taxable income of Rs. 20,000/- after claiming deduction of

Rs. 45,51,898/- under Section 80HHC of the Income Tax Act, 1961 (,,Act for

short) on account of export of Zinc Oxide. The Assessing Officer disallowed

the deduction under Section 80HHC on export of Zinc Oxide on two grounds;

(i) the export had been to Nepal and therefore, was not eligible under Section

80HHC of the Act and (ii) Zinc Oxide was a mineral and thus, Section 80HHC

of the Act would not be applicable.

5.       The Commissioner of Income Tax (Appeals) (,,CIT(A), in short)

reversed the said finding holding that Zinc Oxide was not a mineral but an

inorganic chemical and secondly that the export had been routed through Nepal

on the instructions of the importer at Hong Kong. He held that the export was

made to convertible foreign exchange area.

6.       Aggrieved by the order of the CIT(A), Revenue preferred an appeal

before the Tribunal. On the question whether export was made to Nepal or

through Nepal, the findings of the Tribunal are recorded in paragraphs 3 and 4,

which, for the sake of convenience, are reproduced below:

                 "3. Ground No. 1 relates to the alleged error of the
               CIT(A) in directing the assessing officer to allow
               deduction under section 80HHC of the Act on the
               alleged export of zinc oxide. It has been argued by the
               learned DR that the finding of the learned CIT(A) that
               the above goods were routed through Nepal on
               instruction from Hongkong party over looking the fact

ITA No. 161/2002                                                         Page 2 of 8
               that basic evidence of custom authorities of Indian
               Government, Nepal Government and Hongkong has not
               been filed either before the assessing officer or before
               the CIT(A), evidencing export of goods. Even Nepal
               exports its goods via India. It has been observed by the
               assessing officer that some of the details filed by the
               assessee revealed that he has sent goods to Nepal are
               not eligible for deduction under Section 80HHC of the
               Act. At page 3 he has enumerated at Sl. No. 2 item zinc
               oxide, Bill No. 180 dated 18.2.1991, amount of Rs.
               35,81,026/- date of realisation 21.9.1991 and amount
               realised Rs. 45,51,898/-. Against this order of the
               assessing officer, the assessee went in appeal before the
               CIT(A) who allowed the appeal of the assessee and
               directed the assessing officer to allow deduction under
               Section 80HHC of the ACT in respect of the items of
               export including zinc oxide at Sl. No. 2 in para 2 of the
               CIT(A)'s order. It has been argued by the learned DR
               that goods were exported via Nepal. The export goods
               first left from India to Nepal. Hence deduction under
               Section 80HHC is not available to the assessee and the
               CIT(A) has wrongly allowed the same. The assessing
               officer has also disallowed the claim of the assessee
               under Section 80HHC on the ground that zinc oxide is
               not a mineral. It has been vehemently argued by the
               learned AR of the assessee that the appeal of the
               revenue does not survive since in the case of Shri
               Narendra Rastogi, Appeal No. 175/94-95 has been
               decided by the same CIT(A) Shri K.K. Kapila vide order
               dated 16.6.1994 in which the claim of the assessee has
               been allowed under Section 80HHC for the same zinc
               oxide export via Nepal against which the revenue has
               not gone in appeal. Hence this appeal does not survive
               on the same facts, circumstances and law. The learned
               AR of the assessee has also argued that zinc oxide is
               chemical and not a mineral and all export have been
               made to hard currency area. It has been further argued
               by the learned AR that the assessee has complied with
               all the terms and conditions of dispatch of the goods.
               They have also got the confirmation from Hongkong
               regarding receipt of goods. They have also furnished
               incorporation/Registration Certificate of their buyer in
               support of the existence before the CIT(A). Details of

ITA No. 161/2002                                                           Page 3 of 8
               export sales have been given by the assessee on page 15
               of the Paper Book in which Invoice No. 5/90-91 dated
               28.1.1991 of zinc oxide has been shown to be exported
               to True Field Ltd., 903 Kowloon Centre, Hongkong for
               US$ 176400.00 and amounting to Rs. 35,81,026/-. The
               date of realization is 21.9.1991. At page 16 of the Paper
               Book details of export realisation for the assessment
               year 1991-92 have been given regarding the same zinc
               oxide. At page 18 of the Paper Book is the copy of
               Shipping Bill for the goods Indian produce in which the
               consignee's name has been described as M/s. True Field
               Ltd., Hongkong. Photostat copy of the Bank Realisation
               Certificate has also been filed at page 20 of the Paper
               Book. Copies of purchase order and confirmation
               regarding receipt of goods in Hongkong have been filed
               at pages 29-30 of the Paper Book. The learned DR has
               relied on the Circular No. 575 dated 31.8.1990 in which
               it is contained that, "With a view to removing any
               doubts in this regard, it is reiterated that the expression
               "convertible foreign exchange" in the above mentioned
               provisions of the Income Tax Act, also includes the
               amounts received in non-convertible rupees from
               bilateral account countries and receipts in Indian
               rupees under Government to Government credit.
               However, it does not include remittances from Nepal
               and Bhutan.
               4.       After having heard the rival submissions and
               considering the material available on record, we are of
               the view that the goods have been exported to Hongkong
               through Nepal and not to Nepal. Hence the circular is
               not applicable on the facts and circumstances of the
               case against the assessee. All the documents and
               certified copies have been filed by the assessee. Hence,
               we do not find any justification to interfere with the
               order of the learned CIT(A) which deserves to be
               confirmed and the same is confirmed. Thus both the
               grounds of appeal are disposed of accordingly".
7.       A reading of the aforesaid finding would indicate that the export was in

fact made to a Hong Kong party whose name and details stand mentioned. The

ITA No. 161/2002                                                             Page 4 of 8
export proceeds were specified in U.S. Dollars. The Bank Realisation

Certificate was filed and upon receipt converted into Indian Rupees.

8.       The paper-book referred to in the order of the Tribunal has not been filed

by the Revenue before us and we, therefore, cannot comment on the contents of

the documents and what was stated and apparent from them. Revenue, being

the appellant before us, should have placed the said documents on record,

specially when the plea taken is that the decision of the Tribunal is factually

perverse. As noticed, no specific question of perversity stands framed while

admitting the appeal. It is also not clear whether the aforesaid documents were

not filed before the Assessing Officer, as is argued. The Assessing Officer had

denied entire claim under Section 80HHC of the Act including claim on exports

of Brass Artware and Readymade Garments and this factum has been adversely

commented upon by the CIT(A), who has recorded that the documents and

details have been filed before the Assessing Officer but were ignored and not

adverted to. Hence, on the first stand, we are not inclined to interfere with the

order passed by the Tribunal.

9.       However, learned counsel for the appellant-Revenue is correct that the

Tribunal in the impugned order, has not considered their contention that Zinc

Oxide is a mineral and therefore in terms of Sub-Section (2) to Section 80HHC

of the Act, the export proceeds were not eligible. Our attention was drawn to

Sub-clause (ii) of Section (b) to Section 80HHC, which states that the Section

ITA No. 161/2002                                                           Page 5 of 8
would not apply to minerals and ores other than processed minerals and ores

specified in the 12th Schedule. It is stated that processed Zinc Oxide was not

included in the 12th Schedule. Senior Standing Counsel has filed before us

articles and extracts from books and internet to submit that Zinc Oxide widely

considered to be a mineral in its purist form, yet to be thoroughly accurate, it is

an inorganic chemical compound with varying chemical properties depending

upon the application or use. Zinc Oxide, it is opined could never and cannot be

used directly in the extracted form as a raw mineral and must undergo some

synthetic chemical process to purify and alter its mineral structure. This

compound in particular in crystallized form is primarily used in mineral make

up and products of like nature. It is a sun blocker.

10.      The order of the Tribunal, on the said issue and question is silent and

does not deal and answer whether the product exported was a mineral or an ore

and whether the product was a processed mineral or ore as specified in 12th

Schedule. The contention of the Revenue is that this product is not mentioned

in the list of processed mineral and ores specified in the 12th Schedule. What

was exported, whether it was mineral in the pure form or was it a processed

mineral or something else, is primarily a question of fact and this had to be

decided and determined by the Tribunal.          They are the final fact finding

authority. We have already quoted paragraphs 3 and 4 of the order of the

Tribunal. These are the only finding/discussion. The Tribunal, therefore, has

ITA No. 161/2002                                                           Page 6 of 8
not examined the aforesaid aspect though relevant and important to the issue in


11.      We record that the counsel for the Revenue has relied upon the decision

of the Supreme Court in Gem Granites Vs. Commissioner of Income-Tax,

[2004] 271 ITR 322 and Stonecraft Enterprises Vs. Commissioner of Income

Tax, [1999] 237 ITR 131 on the question of what would and should be

considered to be a mineral, mineral oil etc. Reference is also made to the

decision of the Karnataka High Court in Mithy Granite (P.) Ltd. Vs. Income

Tax Officer, [2004] 266 ITR 151 in which, again the question of what is

,,mineral has been examined and elucidated.

12.      In these circumstances, we have no option but to answer the question of

law framed above in favour of the appellant-Revenue, but with an order of

remand to the Tribunal to decide the issue whether the exported goods were a

"mineral" and therefore, not eligible for deduction in view of Section 80HHC

(2)(b)(ii) of the Act.    The issue and contention whether the product were

processed mineral and whether it would be eligible for deduction in terms of

12th Schedule is also an aspect which will have to be considered. In case, the

stand of the respondent-assessee is that it was not a mineral or processed

mineral, but a different product, again, the issue of fact will have to be

considered and answered. It is in these circumstances that we have passed an

ITA No. 161/2002                                                         Page 7 of 8
order of remand. The appeal is accordingly disposed of. There will be no order

as to costs.

                                                       SANJIV KHANNA, J

                                                   V. KAMESWAR RAO, J
SEPTEMBER 09, 2014/akb

ITA No. 161/2002                                                      Page 8 of 8
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